VAT – Service provider cannot be compelled to be registered as a ‘dealer’ under the VAT Act

By using its own equipments, did not amount to transfer of right to use of equipments and, hence, the agreement, in question, could not make the petitioner liable to pay sales tax on account of transfer of right to use goods for any purpose.

HLS Asia Ltd vs State of Tripura (GAUHATI HIGH COURT)

The petitioner is a Company incorporated under the Companies Act, 1956, having its registered office at New Delhi, and a branch office at Agartala and deals with the business of providing services including ‘Well Logging Perforating and other Wire Line Services’, on contract basis, in the entire country including the State of Tripura. Pursuant to a notice inviting tender, issued by the ONGC for executing the work of Well Logging, Perforating and other Wire Line Services for its oil and natural gas exploration and exploitation, to be carried out in the State including other States. The petitioner tender was accepted by the ONGC and a contract agreement was executed between ONGC and the petitioner. The agreement contained provisions for payment of rentals for equipments deployed and used in rendering services and also for operating and other charges in accordance with the pricing structure for such type of services including provision for payment of mobilisation charges, demobilisation charges etc. The contract also contained various other provisions regulating the reciprocal rights and liabilities of the parties to the contract. According to the provisions of the agreement, the equipments, on rental, were to remain in possession of the contractor, i.e., the petitioner as its exclusive property. All the equipments were simply used by the contractor-petitioner for providing the services under the agreement and the contractor-petitioner was to remain entitled to compensation under various heads as per the agreement.

Whether the petitioner fall in the category of ‘dealer’ u/s 4(2) of the TVAT Act compelling the petitioner to pay tax under the TVAT Act.

On behalf of responded it was contended that the equipments and tools to be provided by the contractor, i.e., the petitioner, shall remain in the possession of the petitioner, as contractor, the petitioner having the exclusive right to use such equipments and tools, the fact remains that the contractor was required to provide 24 hour service, as and when required by the company, by mobilizing crew and equipments and tools for the services of ONGC Ltd. monthly rental charges, on the equipments, were payable by ONGC for the equipments, which the petitioner was to include in its invoices. The contract was for supply of materials, such as, spares, explosives, logging cables, etc., which are taxable under TST Act, 1976, as well as the TVAT Act, 2004. All the rates, estimated by the ONGC Ltd., were inclusive of excise duty, sales tax and octroi, etc., if any, and, thus, the petitioner was liable to be registered under TVAT Act, 2004, and was liable to file return in accordance with the relevant provisions of law.

Held, the petitioner merely worked as a service provider and, for the purpose of rendering services, under the contract agreement, the petitioner had mobilized equipments and accessories in order to execute the works contract and the respondents could not show any material to prove any element of transfer of right to use any of the equipments/accessories by the petitioner to the ONGC. It is, no doubt, that tax is chargeable in the event of transfer of the property in goods or if there is a deemed transfer, and, as it has already been decided by this Court, there was no element of transfer of right to use any goods and therefore, the petitioner was not chargeable to pay sales tax.